![]() “I think practitioners would take a look to see if there was any utility to that doctrine in the refund context,” Hill said. ![]() Commissioner that a deadline for filing a petition at the US Tax Court was subject to equitable tolling, meaning the Tax Court could allow late petitions for equitable reasons. Hill pointed to the Supreme Court’s ruling in Boechler v. If the statute of limitations for a client has passed, practitioners might also explore equitable doctrines for bringing a late claim, said Larry Hill, a New York-based partner in Steptoe’s tax controversy practice. 2501 for suing at the federal claims court. 2401 for suing in a federal district court and under 28 U.S.C. He pointed to the deadlines under 28 U.S.C. However, if tax refund procedures don’t apply, account holders would have six years to sue, said Frewing. In general, tax refund claims must be filed within three years of when a tax return was filed or within two years of when the tax was paid-whichever date comes later. ![]() McManus noted there can be significant downsides to suing, including having to go public, incurring litigation costs, and exposing oneself to potential government counterclaims. “What I would do in these cases is file as much correspondence with the IRS as I possibly could” in the hope that the agency would agree to issue the refund “prior to me being forced to initiate litigation,” McManus said. The best pathway forward may be to go first to the IRS, and then explore litigation as a last resort, according to Latham & Watkins Boston partner Brian C. “If they do want to open up some sort of administrative avenue, they would need to find the legal grounds under which to do it, and I don’t know where you find that,” Jaramillo said. He noted that the IRS can’t compromise on an FBAR penalty it has already assessed of more than $100,000 without approval from the Justice Department. Jaramillo, a member in Caplin & Drysdale’s Washington office who specializes in tax issues, questioned whether the IRS has legal authority to provide an administrative avenue for handling FBAR refund claims. He noted penalties are “processed through the internal revenue code” in the sense that account holders report their accounts as part of their tax filings. Rothenberg added, however, that he expects the IRS “would have a lot of pushback from judges” if it took the position that it couldn’t issue a refund. “I think it’s an open question whether the IRS would say it has no authority to issue a refund,” said Gil Rothenberg, a former head of the Justice Department Tax Division appellate section. Roumel writing that “FBAR penalties are not internal-revenue taxes” and therefore a requirement tied to tax refund lawsuits didn’t apply to the penalties. Yet the US Court of Federal Claims ruled differently in 2021, with Judge Eleni M. Ambro wrote that he and two other judges of the US Court of Appeals for the Third Circuit were nonetheless “inclined to believe” an account holder’s penalty challenge fell under the tax refund statute, 28 U.S.C. In a 2018 statement that was not binding court precedent, Judge Thomas L. However, penalties for failing to timely report foreign bank and financial accounts through filings known as “FBARs” are authorized by the Bank Secrecy Act, which falls outside the tax code. The IRS provides an administrative pathway for taxpayers to claim various tax refunds, which starts with filing Form 843 with the agency. Frewing, a partner in Baker & McKenzie’s Palo Alto office who specializes in tax issues. “I don’t think there’s an administrative process to invoke, and I do think one would have to go directly to district court” or the US Court of Federal Claims, said Scott H. SIGN UP for The Exchange, our free weekly tax newsletter. But even for those who didn’t agree not to seek a refund, getting the refund may still be hard. Many account holders who overpaid non-willful penalties would have signed a closing agreement with the IRS that likely blocks their ability to seek refunds, according to practitioners. For some, the financial impact of the ruling could be enormous: Alexandru Bittner, for instance, now faces just $50,000 in penalties as a result of winning his case, not the $2.72 million the IRS assessed. Bittner that the Internal Revenue Service was misreading the Bank Secrecy Act and over-penalizing foreign account holders who non-willfully failed to report their accounts. Foreign bank account holders may be forced to file lawsuits in order to recoup IRS penalties the US Supreme Court ruled were excessive.
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